The international trading system is regulated by an increasing number of regional trade agreements (RTAs). The Addis Agenda highlights the importance of regional economic integration for the promotion of inclusive growth and sustainable development.
An ever-increasing number of regional trade agreements and preferential trade arrangements, including a notable increase in large plurilateral agreements under negotiation, is a prominent feature of international trade today. Following the notification of the RTA between Mongolia and Japan in June 2016, all WTO members now have an RTA in force and, currently, there are some 433 RTAs worldwide, according to the WTO RTA database. However the distribution of the number of RTAs is highly skewed towards, with richer countries tending to have more agreements.
Countries’ capacity to participate in international trade depends largely on their physical connectivity to world markets, such as the availability of regular shipping services for merchandise exports and imports. UNCTAD’s Liner Shipping Connectivity Index (LSCI) compares the level of maritime connectivity, in term of integration into global liner shipping networks, across countries. The maritime connectivity of SIDS and LDCs has been on the rise over the last 10 years, but remains far below the world average. This imposes additional difficulties for SIDS and LDC exporters who are competing with exporters from other countries, who can get their products to their destination faster and cheaper.
Asia-Pacific regional integration through merchandise trade has risen only slightly in the last decade as intraregional preferential trade agreements in force has declined from 2005 to 2015. Indeed, the increase in regional trade integration in the 1990s and early 2000s due to the proliferation of global value chains appears to have reached its limit. Hence future intraregional integration may depend on intraregional FDI and an increase in trade of goods for final consumption in the region. The intra-regional share of greenfield FDI has reached an all-time time, hitting almost 55 per cent in 2015. ASEAN in particular has emerged as a significant beneficiary of intraregional FDI. Newer investment programmes, most notably the One Belt-One Road Initiative are likely to increase intraregional FDI integration further in coming years and may provide an opportunity for countries in North and Central Asia and South and South-West Asia.
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- The Asia-Pacific region has experienced a significant rise in regional integration from 2005 to 2015. Intraregional FDI has risen from 30 per cent to 52 per cent in this period. This reflects the growing importance of regional emerging economies as a source of finance for investment, with intraregional flows replacing those from traditional investors like the United States and the European Union. This has particularly been the case since the global financial crisis in 2008. ASEAN in particular has emerged as a significant beneficiary of intraregional FDI, due to the increase in production costs in China, and a concerted effort through the Initiative for ASEAN integration and other programmes to boost investment in Cambodia, Myanmar, Lao People’s Democratic Republic and Viet Nam (OECD, 2016).Newer investment programmes, most notably China’s One Belt-One Road are likely to increase intraregional FDI integration further in coming years. However, once again it is important to note that the majority of intraregional greenfield FDI flows have ended up in South East Asia and East and North-East Asia, while other regions remain relatively unattached. One Belt-One Road and other projects may provide an opportunity for countries in North and Central Asia and South and South-West Asia to access regional finance for investment.References
- Economic and Social Commission for Asia and the Pacific (2016a). Asia-Pacific Trade and Investment Trade Agreements Database.
- Economic and Social Commission for Asia and the Pacific (2016b). Asia-Pacific Trade and Investment Report 2016: Recent Trends and Developments, United Nations, Bangkok.
- International Monetary Fund (2016). Direction of Trade Statistics database.
- Organisation for Economic Co-operation and Development (2016). Economic Outlook for Southeast Asia, China and India 2016: Enhancing Regional Ties. Paris.
- Financial Times Ltd. fDiIntelligence, fDi Markets: The in-depth cross border investment monitor.